Fundamental Analysis
Enterprise Value
1
Enterprise value is a measure of a company’s total value. It is calculated using the following formula: Market Capitalisation + All Debt – Cash (or cash equivalents).
2
The enterprise value is different from the true value of the underlying business. Instead, it represents a fair value that investors should be willing to pay in order to buy the firm.
3
In order to compare the enterprise value of a company with its share price, you simply need to divide the enterprise value by the number of shares outstanding. This would be the enterprise value per share.
4
The flaw of enterprise value is that it is not known how companies are using debt. Some firms are very capital intensive and may be using a lot of short-term debt capital to benefit their short-term operations.
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